UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549



                          ----------------------------



                                    FORM 10-Q



            QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934



                  For the quarterly period ended March 31, 1998



                         Commission File Number 0-20516
                        --------------------------------



                          MASON-DIXON BANCSHARES, INC.
                         ------------------------------
             (Exact name of Registrant as specified in its charter)



           Maryland                                     52-1764929
           --------                                     ----------
(State or other jurisdiction of                      (I.R.S. Employer
incorporation or organization)                       Identification No.)



 45 W. Main Street, Westminster, Maryland                  21157
------------------------------------------                -------
 (Address of principal executive offices)               (Zip Code)



                                 (410) 857-3401
                                 --------------
               Registrant's telephone number including area code:


<PAGE>




Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  Registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days.


                     Yes   X                No
                         -----                 -----


The number of shares outstanding of the registrant's common stock
on March 31, 1998:    Common Stock, $1.00 Par Value --- 5,083,195


<PAGE>
                                     Index


PART I  -  FINANCIAL INFORMATION

Item 1.    Financial Statements:                                        Page:
                                                                        ----

           Consolidated Balance Sheet
           March 31, 1998 and December 31, 1997                           3

           Consolidated Income Statement
           Three months ended March 31, 1998 and March 31, 1997           4

           Consolidated Statement of Cash Flows
           Three months ended March 31, 1998 and March 31, 1997           5

           Consolidated Statement of Changes in Stockholders' Equity
           Three months ended March 31, 1998 and March 31, 1997           6

           Notes to the Consolidated Financial Statements                 7

Item 2.    Management's Discussion and Analysis of Financial Condition
           and Results of Operations                                   8-10

PART II  - OTHER INFORMATION

Item 4.  - Submission of Matters to a Vote of Security Holders           12

Item 6.  - Exhibits and Reports on Form 8K                               14

Signatures                                                               14

                                      - 2 -
<PAGE>



PART I  -  FINANCIAL INFORMATION

Item 1. -  Financial Statements

                          MASON-DIXON BANCSHARES, INC.
                           CONSOLIDATED BALANCE SHEET

                                                        March 31,  December 31,
(Dollars in thousands)                                     1998         1997
----------------------                                     ----         ----

ASSETS

Cash and due from banks                                 $ 17,483     $ 20,245
Interest bearing deposits in other banks                   1,234          482
Federal funds sold                                        33,675       17,236
Investment securities available for
   sale (AFS) - at fair value                            249,062      249,855
Investment securities held to maturity (HTM)
   - at amortized cost                                   198,264      204,045
(fair value $199,564 and $206,515 respectively)
Loans held for sale                                        9,459        4,439
Loans (net of unearned income of $952 and $341)          504,611      460,391
   Less:  Allowance for credit losses                     (8,461)      (5,231)
                                                        --------     --------
   Loans, net                                            496,150      455,160

Bank premises and equipment                               15,817       15,530
Other real estate owned                                      470          685
Deferred tax assets                                        6,286        6,089
Mortgage sub-servicing rights                              3,311        3,412
Intangible assets                                          8,302        2,956
Accrued interest receivable and other assets              13,713       12,046
                                                        --------     --------
   Total Assets                                       $1,053,226    $ 992,180
                                                      ==========    =========



<PAGE>



LIABILITIES

Non-interest bearing deposits                         $   90,047    $  89,692
Interest bearing deposits                                578,095      561,557
                                                        --------     --------
   Total Deposits                                        668,142      651,249

Short-term borrowings                                    118,489       97,203
Long-term borrowings                                     179,011      160,889
Accrued expenses and other liabilities                    10,602        7,390
                                                        --------     --------
   Total Liabilities                                     976,244      916,731

STOCKHOLDERS' EQUITY

Common stock - $1.00 par value, authorized:
10,000,000 shares, issued and outstanding;
5,083,195 shares (1998) and 5,077,468 shares (1997)        5,083        5,077
Surplus                                                   36,142       35,948
Retained earnings                                         33,923       32,275
Accumulated other comprehensive income                     1,834        2,149
                                                        --------     --------
   Total Stockholders' Equity                             76,982       75,449
   Total Liabilities & Stockholders' Equity           $1,053,226    $ 992,180
                                                      ==========    =========

Note:  The balance sheet at December 31, 1997 has been derived from the
audited financial statement at that date.

See notes to the consolidated financial statements.




                                      - 3 -

<PAGE>



                          MASON-DIXON BANCSHARES, INC.
                          CONSOLIDATED INCOME STATEMENT

                                                         Three Months Ending
                                                              March 31,
(Dollars in thousands, except per share data)              1998        1997
---------------------------------------------              ----        ----

Interest Income:
  Interest and fees on loans                            $ 11,959   $ 9,105
  Interest on deposits in other banks                         15        13
  Interest on federal funds sold                             284       251
  Interest and dividends on investment securities:
    Taxable interest on mortgage-backed securities         4,404     4,104
    Other taxable interest and dividends                   1,844       914
    Tax exempt interest and dividends                      1,172     1,108
                                                        --------   -------
    Total interest income                                 19,678    15,495

Interest Expense:
  Interest on deposits:
    Time certificates of deposit of $100,000 or more         424       393
    Other deposits                                         5,768     5,363
                                                        --------  --------
      Total interest on deposits                           6,192     5,756

Interest on short-term borrowings                          1,581       720
Interest on long-term borrowings                           2,673     1,284
                                                        --------  --------
    Total interest expense                                10,446     7,760
                                                        --------  --------
Net interest income                                        9,232     7,735
Provision for credit losses                                  317        57
                                                        --------  --------
Net interest income after provision for credit losses      8,915     7,678
                                                        --------  --------
Other Operating Income:
  Service charges on deposit accounts                        537       546
  Trust Division income                                      381       343
  Gain on sale of securities                                 311       221
  Gain on sale of mortgage loans                             436       291
  Other income                                               763       425
                                                        --------  --------
    Total other operating income                           2,428     1,826
                                                        --------  --------
Other Operating Expenses:
  Salaries and employee benefits                           4,905     3,718
  Net occupancy expense of bank premises                     692       623
  Furniture and equipment expenses                           483       438
  Legal and professional fees                                220       259
  FDIC insurance expense                                      20        19
  Outside data processing expense                            341       260
  Amortization of mortgage sub-servicing rights              104       104
  Amortization of other intangibles assets                   104       123
  Other expenses                                           1,093       861
                                                        --------  --------

                                      

<PAGE>



    Total other operating expenses                         7,962     6,405
                                                        --------  --------
Income before income taxes                                 3,381     3,099
Income tax expense                                           870       824
                                                        --------  --------
Net Income                                              $  2,511  $  2,275
                                                        ========  ========

Per Share Data:
  Cash Dividend Paid                                    $   0.17  $   0.15

  Net Income (Basic)                                    $   0.49  $   0.43
  Net Income (Diluted)                                  $   0.49  $   0.43
  Average Shares Outstanding (Basic)                   5,079,326 5,307,998
  Average Shares Outstanding (Diluted)                 5,084,788 5,308,123





                                      - 4 -

<PAGE>



                          MASON-DIXON BANCSHARES, INC.
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                  for the period ended March 31, 1997 and 1997
                                

                                                         For the Period Ended
                                                               March 31,
(Dollars in thousands)                                     1998      1997
----------------------                                     ----      ----

CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income                                               $ 2,511   $ 2,275
Adjustments to reconcile net income to net cash
provided by operating activities:
     Depreciation                                            406       440
     Amortization of mortgage sub-servicing rights           104       104
     Amortization of intangibles                             104       123
     Net accretion of purchase accounting adjustments        (96)     (144)
     Provision for credit losses                             317        57
     Proceeds from sales of investment securities - Trading   20     3,177
     Purchases of investment securities - Trading              0    (3,152)
     Originations of loans held for sale                 (16,900)  (15,184)
     Proceeds from sales of loans held for sale           12,316    14,913
     Net gain on sale of assets                             (782)     (512)
     Net (increase) decrease in accrued interest
           receivable and other                           (1,225)     (723)
     Net increase (decrease) in accrued expenses and
           other liabilities                                 965    (1,240)
     Other - net                                              (4)      277
                                                          ------    ------
    Net cash provided by operating activities             (2,264)      411
                                                          ------    ------
CASH FLOWS FROM INVESTING ACTIVITIES:
   Proceeds from maturities of investment securities-HTM  16,322     2,890
   Purchases of investment securities - HTM              (10,576)   (9,907)
   Proceeds from maturities of investment securities-AFS  24,652     7,235
   Proceeds from sales of investment securities - AFS     26,025    33,695
   Purchases of investment securities - AFS              (50,145)  (49,684)
   Net decrease (increase) in loans                          585   (12,083)
   Capital expenditures                                     (521)     (260)
   Proceeds from sales of assets                              49         0
   Acquisitions of subsidiaries, net of cash acquired    (14,993)        0
                                                         -------   -------
   Net cash used by investing activities                  (8,602)  (28,114)
                                                         -------   -------
CASH FLOWS FROM FINANCING ACTIVITIES:
   Net increase (decrease) in deposits                    16,893     8,864
   Net increase (decrease) in short-term borrowings       (9,057)   11,022
   Proceeds from long-term borrowings                     20,000    20,000
   Repayments of long-term borrowings                     (1,878)  (12,631)
   Issuance of additional shares of common stock             200       182
   Repurchase of common stock                                  0       (97)
   Dividends paid                                           (863)     (797)
                                                         -------   -------
   Net cash provided by financing activities              25,295    26,543
                                                         -------   -------
Net increase (decrease) in cash and cash equivalents      14,429    (1,160)
Cash and cash equivalents at beginning of year            37,963    46,346
                                                         -------   -------
Cash and cash equivalents at end of period              $ 52,392  $ 45,186
                                                        ========  ========
See notes to the consolidated financial statements.

                                      - 5 -

<PAGE>



<TABLE>
                          MASON-DIXON BANCSHARES, INC.
                      CONSOLIDATED STATEMENT OF CHANGES IN
                              STOCKHOLDERS' EQUITY

               FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997

                        
<CAPTION>

                                                                                Other
                                            Common  Accumulated   Retained  Comprehensive
(Dollars in thousands)                       Stock   Surplus      Earnings     Income

<S>                                        <C>         <C>         <C>          <C>    

Balance at December 31, 1996                $ 5,303     $ 40,560    $ 26,331     $ 505

Net income (1st three months 1997)                0            0       2,275       -

Issuance of additional shares of common stock     9          173           0       -

Repurchase of shares of common stock             (5)         (92)          0       -

Cash dividend @ $.15 per share                    0            0        (797)      -

Net unrealized losses on available-for-sale
   securities (net of tax)                        0            0           0    (1,296)
                                            -------      -------     -------   -------
Balance at March 31, 1997                     5,307       40,641      27,809      (791)

Net income (2nd, 3rd, 4th quarters 1997)          0            0       6,884       -

Issuance of additional shares of common stock    15          378           0       -

Repurchase of shares of common stock           (245)      (5,071)          0       -

Cash dividend @ $.47 per share                    0            0      (2,418)      -

Net unrealized gains on available-for-sale
   securities (net of tax)                        0            0           0     2,940
                                            -------      -------     -------   -------
Balance at December 31, 1997                  5,077       35,948      32,275     2,149

Net income (1st quarter 1998)                     0            0       2,511       -

Issuance of additional shares of common stock     6          194           0       -

Repurchase of shares of common stock              0            0           0       -

Cash dividend @ $.17 per share                    0            0        (863)      -

Net unrealized gains on available-for-sale
   securities (net of tax)                        0            0           0      (313)

Less:  Reclassification adjustment for losses
   realized in net income                         0            0           0        (2)
                                            -------      -------    --------  --------
Balance at March 31, 1998                   $ 5,083     $ 36,142    $ 33,923  $  1,834
                                            =======     ========    ========  ========

</TABLE>




                                      - 6 -

<PAGE>



                          MASON-DIXON BANCSHARES, INC.
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


Note 1. The  foregoing  financial  statements  are  unaudited,  however,  in the
opinion of Management, all adjustments (consisting of normal recurring accruals)
necessary  for a  fair  presentation  of  the  financial  statements  have  been
included. Certain amounts for prior periods have been reclassified to conform to
current period presentation. These statements should be read in conjunction with
the financial statements and notes thereto included in the Company's 1997 Annual
Report on Form 10-K.

Note 3.  Investment Securities
<TABLE>

<CAPTION>
                                           Available-for-Sale          Held-to-Maturity
                                         March 31,     March 31,    March 31,    March 31,
(Dollars in thousands)                    1998         1997         1998         1997
------------------------------------------------------------------------------------------
<S>                                    <C>          <C>         <C>          <C>    

U.S. Treasury securities and
   agency notes                         $ 68,569     $  2,998    $  33,016    $  45,147
Obligations of U.S. government agencies  117,399      129,010       13,536       17,507
Obligations of states and political
   subdivision                                 0            0       86,279       81,986
Collateralized mortgage obligations       49,746       35,117       59,004       55,314
Other securities                          10,359        6,189        6,429          289
Unrealized gains(losses)                   2,989       (1,289)           0            0
                                        --------     --------     --------     --------
   Total Investment Securities         $ 249,062     $172,025     $198,264    $ 200,243
                                       =========     ========     ========    =========

</TABLE>

Note 4.  Loans (Net of Unearned Income)


                                                    March 31,       March 31,
(Dollars in thousands)                                1998            1997
--------------------------------------------------------------------------------

Construction and Land Development                 $  36,188      $   23,365
     Residential Real Estate - Mortgages            186,782         173,740
     Commercial Real Estate - Mortgages             134,036         113,305
     Commercial                                      87,269          78,352
     Consumer                                        60,336          21,416
                                                   --------        --------
          Total Loans                             $ 504,611      $  410,178
                                                  =========      ==========

Note 4.  Allowance for Credit Losses

(Dollars in thousands)                                1998            1997
--------------------------------------------------------------------------------
Balance at January 1                              $  5,231       $   5,167
Provision for the year                                 317              57
     Recoveries on loans                                42             122
                                                   -------         -------
          Total                                      5,590           5,346

Less loans charged off                                  52              98
Allowance of purchased company                       2,923               0
                                                   -------         -------
     Balance at March 31                          $  8,461       $   5,248
                                                  ========       =========

     The  appropriateness  of  the  allowance  for  possible  credit  losses  is
determined  based  on  a  quarterly  detailed  review  of  the  loan  portfolio,
off-balance sheet commitments, and recent economic projections.

                                      - 7 -

<PAGE>



                          MASON-DIXON BANCSHARES, INC.
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Note 5.  Per Share Amounts

         On December  31, 1997,  the Company  adopted  FASB  Statement  No. 128,
"Earnings  Per Share."  Statement  128  establishes  standards for computing and
presenting  earnings per share ("EPS") that  simplify the  standards  previously
followed in Accounting  Principals  Board Opinion No.15.  It replaces the former
presentation  of  primary  EPS  with a  presentation  of basic  EPS  and,  where
applicable,  requires the dual presentation of basic and diluted EPS on the face
of the income statement.  Basic EPS is generally computed by dividing net income
by the weighted  average  number of common  shares  outstanding  for the period,
whereas  diluted EPS  essentially  reflects the potential  dilution in basic EPS
that could occur if other  contracts  to issue stock were  exercised.  Per share
amounts are based on the weighted  average number of shares  outstanding  during
the year.

Note 6.  Comprehensive Income

         On  January  1,  1998,  the  Company  adopted  Statement  of  Financial
Accounting Standards No. 130, "Reporting  Comprehensive  Income."  Comprehensive
income,  as  defined  by  Statement  130,  is the change in equity of a business
enterprise  during a reporting  period from  transactions  and other  events and
circumstances from non-owner sources. In addition to an enterprise's net income,
change in equity  components  under  comprehensive  income  reporting would also
include  such  items  as  the  net  change  in   unrealized   gain  or  loss  on
available-for-sale  securities  and foreign  currency  translation  adjustments.
Statement 130 requires  disclosure of  comprehensive  income and its  components
with the same prominence as the Company's other financial statements.


ITEM 2.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
          CONDITION AND RESULTS OF OPERATIONS

                          MASON-DIXON BANCSHARES, INC.

FORWARD LOOKING STATEMENTS

         This  section of the  report may  contain  forward  looking  statements
within the meaning of the Private  Securities  Litigation  Act of 1995.  Certain
statements are included which may relate to management's beliefs,  expectations,
anticipation's  and plans  concerning,  among  other  things,  economic  trends,
interest  rates,  and other  matters.  Such  statements  are subject to numerous
uncertainties  including the effects of monetary policies,  regulatory  changes,
levels  of  inflation,  unemployment,  consumer  confidence  and the  health  of
commercial and residential

                                      - 8 -

<PAGE>



real estate values in Mason-Dixon's  market area. There can be no assurance that
future events will develop in  accordance  with any forward  looking  statements
contained herein.

SUMMARY

         Mason-Dixon  Bancshares,  Inc.  ("Mason-Dixon")  reported net income of
$2.511 million for the first quarter of 1998, an increase of 10% over the $2.275
million reported for the first quarter of 1997. On a per share basis (both basic
and diluted),  net income equaled $.49 for the first quarter of 1998 compared to
$.43 for 1997, up 14%.

         For the quarter,  annualized return on average assets was 1.00% in 1998
compared  to 1.08%  for  1997,  while  return on  average  stockholders'  equity
increased to 13.47% compared to 12.67% for the same period for 1997.

         Results for the first quarter increased as a result of increases in net
interest  income and non-  interest  income  associated  with  growth in earning
assets and higher fees from  mortgage  banking  operations,  trust  services and
sales of nondeposit  investment  products.  Revenues were also  increased by the
acquisition  during the quarter of Rose  Shanis  Companies,  a consumer  finance
company with approximately $43 million in loans outstanding.

STATEMENT OF CONDITION

         Total assets as of March 31, 1998 were $1.053 billion, up 21% from last
year and up 6% from December 31, 1997. The significant growth from last year was
due  to  increases  in  loan  outstandings,  as  well  as  increased  investment
securities which resulted from a leverage strategy engaged in the second quarter
of 1997.  On June 6, 1997  Mason-Dixon  completed the issuance of $20 million of
Preferred  Securities of the Mason-Dixon  Capital Trust, a Trust  established by
Mason-Dixon for financing purposes. These securities are classified as long-term
borrowings for balance sheet purposes but the proceeds qualify as Tier 1 Capital
of Mason-Dixon for regulatory  purposes. A portion of the proceeds (capital) was
used to  engage  in a  leverage  strategy  which  involves  increased  levels of
investments and borrowings and which earn a positive net interest margin.  Loans
outstanding  have  increased $44 million or 10% since year end while  investment
securities  declined  by $7  million  (3%).  Of the total  growth in loans,  $43
million is due to the acquisition of the consumer  finance  company.  Loans have
increased  $94  million  (23%) from last year,  again with  outstandings  of the
acquired  consumer  finance  subsidiary  increasing  outstandings  $43  million.
Deposits  have  increased  $17 million (3%) from year end, and $39 million or 6%
compared to March 31, 1997  largely due to growth in  certificates  of deposits.
Borrowing increased $39 million (15%) since year

                                      - 9 -

<PAGE>



end, with short-term  borrowings associated with the acquisition of loans adding
$28 million.  Since March 31, 1997, borrowings increased by $140 million,  which
includes the preferred securities of $20 million,  higher borrowings  associated
with the  leverage  strategy  of $60  million,  and $28  million  assumed in the
acquisition of the consumer finance company. Stockholders' equity increased $1.5
million from year end 1997. Earnings added $2.5 million to stockholders  equity,
while  cash  dividends  have  reduced  equity  by $863  thousand.  Decreases  in
accumulated comprehensive income were $200 thousand since year end.

INCOME STATEMENT - FIRST QUARTER

         Net interest  income  increased by $1.497  million  (19%) due to normal
growth in earning  assets as well as the  acquisition  of the  consumer  finance
company.  Additional  acquisition  related net interest  income  totaled  $1.250
million.  The net interest margin on earning assets  decreased 8 basis points to
4.11%.  Average  earning  assets  increased  $166 thousand  (21%) while interest
bearing liabilities increased $218 thousand (35%).

         Total other operating  income  increased 33% or $602 thousand.  Service
charge income decreased by $9 thousand. Gains on sales of mortgage loans grew by
$145  thousand  or 50% due to  expansion  of the  Mortgage  Banking  Division of
Carroll County Bank and Trust Company (Mason-Dixon  Bancshares Mortgage Company)
and higher  levels of  refinance  activity.  Trust  Division  income grew by $38
thousand or 11% due to growth in accounts  under  management.  Securities  gains
increased by $90 thousand. The increase in gains resulted due to the liquidation
of certain  investment  securities  sold to raise cash for the  purchase  of the
consumer finance  subsidiary.  Other operating income increased by $338 thousand
or 80% which  reflect  increased  revenue from the sales of annuities and mutual
funds,  as  well  as fee  income  generated  from  consumer  finance  activities
($220,000).

         Total other operating  expenses  increased by $1.557 million or 24% due
to the additional  expenses of the consumer finance company of $927 thousand and
higher expenses of the Mortgage Banking Division of $217 thousand. Excluding the
additional  expenses of the new  subsidiary  and expansion of mortgage  banking,
expenses grew by $413 thousand (6%). All areas of noninterest  expense increased
as a result of the acquisition.

CAPITAL ADEQUACY

         At the end of the quarter,  the Company's  capital  leverage  ratio was
8.01%,  down  from  8.74% at the end of the year.  Tier 1 and  Total  Risk-based
ratios  were  12.83% and 13.78%  respectively  compared  to 14.74% and 15.64% at
December 31, 1997.  Regulatory  minimums to qualify as "well capitalized" are 5%
for capital leverage, 6% for Tier 1 Risk-based, and 10% for Total Risk-based

                                     - 10 -

<PAGE>



capital. Decreases in the various capital adequacy ratios were the result of the
acquisition of the consumer finance  subsidiary which added  approximately  $5.4
million of additional goodwill which lowers the amount of qualifying capital. In
April of 1998,  Mason-Dixon  completed a $20 million offering of Trust Preferred
securities. These instruments were issued to pay off a portion of the short-term
borrowings  of  the  consumer  finance  company.  Of  the  $20  million  issued,
approximately $4 million will be added to Tier 1 capital,  and the remaining $16
million will qualify as Tier 2 capital.

MARKET RISK DISCLOSURES - INTEREST RATE SENSITIVITY

         At the  end of the  quarter,  Mason-Dixon  had an  estimated  one  year
positive gap of $16 million on a consolidated  basis,  which was less than 2% of
assets. The positive one year gap at the end of the last quarter was $42 million
or 4% of total assets.  This position reflects a low level of interest rate risk
and would  indicate  longer term earnings  would  decrease  somewhat with higher
levels of interest  rates.  Management  believes  the overall  rate  sensitivity
position is appropriate for current rate conditions.

         Mason-Dixon tests its interest rate sensitivity  through the deployment
of simulation  analysis.  An earnings  simulation model is used to estimate what
effects  specific  interest  rate changes would have on one year of net interest
income.  Derivative  financial  instruments,  such as interest  rate swaps,  are
included in the analysis.  Interest rate caps and floors on certain products are
included  to the  extent  they  become  effective  within  one year.  Changes in
prepayment  assumptions  have been included  where  changes in payment  behavior
pattern is assumed to be different to the  simulation.  Call features on certain
securities are based on their projected call  probability in view of the assumed
rate environment.  At March 31, 1998  Mason-Dixon's  estimated  earnings profile
reflected a modest sensitivity to interest rate changes. Based on an assumed 100
basis  point  immediate  increase in interest  rates,  Mason-Dixon's  pretax net
interest  income would increase by $3,701,000  (1%) if rates were to increase by
100 basis  points,  and decline by $788,000  (2%) should rates fall by 100 basis
points.

YEAR 2000 PREPAREDNESS

         Mason-Dixon continued its progress in preparing for the year 2000 Issue
during the first quarter of 1998.  The Year 2000 Issue is the result of computer
programs and equipment which are dependent on "embedded chip  technology"  using
two digits rather than four to define any particular  year. Any of Mason-Dixon's
computer  programs or other  equipment  that are date  dependent may recognize a
date using "00" as the year 1900 rather than the year 2000. This could result in
a system  failure  or  miscalculations  causing  disruptions  of  operations,  a
temporary inability to

                                     - 11 -

<PAGE>



process transactions, send invoices, or engage in similar normal
business activity.

         During the quarter,  critical processing  applications were reviewed to
identify potential  problems in any customized  computer code, test scripts were
developed for  processing  critical  software,  and a formal review began of any
credit  relationships  which may present  risks due to  customers  inability  to
remedy their own year 2000 issues.

         Based on assessments  made through the first quarter,  Mason-Dixon  has
determined that it may be required to modify or replace portions of its software
and other equipment which cannot be made year 2000 compliant.  The expected cost
of  modifications  and  replacements  is currently  estimated at $660,000 and is
being funded  through  operating  cash flows.  It is expected  that all critical
remedies  will be in place within one year or not later than  December 31, 1998.
The  assessment  of any credit  risk that may be  attributable  to the Year 2000
Issue is expected to be completed by the end of the second quarter of 1998.

         The costs of the project and  projected  completion  dates are based on
management's  best estimates,  which were derived using numerous  assumptions of
future events.  There can be no guarantee that these  estimates will be achieved
and actual results could materially differ from the estimates.

PART II  - OTHER INFORMATION

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

         An annual meeting of stockholders was held on Saturday, April 18, 1998.
The purpose of the meeting was to vote on the  election of Class III  directors,
vote on an omnibus share plan, vote on an increase in authorized  capital stock,
vote on the  elimination  of  stockholder's  preemptive  right,  and vote on the
limitation of director liability and removal of residency requirements.

         The  omnibus  share  plan  permits  the award of stock  options,  stock
appreciation rights, performance shares, and stock bonuses under a plan approved
by the  Board of  Directors  in 1997.  The  purpose  of the plan is to assist in
attracting  and  retaining  key  personnel  who are in a position to  contribute
materially  to the success of  Mason-Dixon.  The number of shares  which will be
available  for  grant  under  the  plan  will  be  248,800.  The  plan  will  be
administered by the Compensation Committee of the Board of Directors.

         A proposal to  authorize  an increase in the number of shares of common
stock from 10,000,000 to 20,000,000 was also subject to a vote of  stockholders.
This amendment  ensures that a sufficient  number of shares of common stock will
be  available  for  possible  future   transactions,   including  among  others,
acquisitions,

                                     - 12 -

<PAGE>



financings,  stock  splits,  benefit and  compensation  plans and other  general
corporate purposes.

         Votes were also  recorded on a proposed  amendment  to the  articles of
incorporation which would delete article 13 pertaining to preemptive rights. The
term "preemptive rights" means that if Mason-Dixon  proposes to issue additional
shares of its common  stock,  the new shares  must first be offered to  existing
stockholders  at the  same  price  and  terms  as it  would  be  offered  to new
stockholders.

         Proposals  to amend  Mason-Dixon's  articles  of  incorporation  on the
limitation of director liability and removal of residency requirements were also
voted on. The focus of the  amendments is to protect  directors and officers and
to permit  Mason-Dixon  to enlist the  services of  exceptional  people  without
regard to their place of residence.

         The vote  pertaining  to the election of the Class III directors was as
follows:

          Henry S.        William B.       S. Ray        James C.
          Baker, Jr.      Dulany           Hollinger     Snyder

For      4,376,720       4,372,861        4,414,998     4,383,599
Withheld    83,952          87,806           45,673        77,073

         The following Class I and Class II directors continue to
serve as of the date of the stockholder meeting:  David S.
Babylon, Jr., Miriam F. Beck, Donald H. Campbell, Thomas K.
Ferguson, R. Neal Hoffman, J. William Middelton, Edwin W. Shauck,
and Stevenson B. Yingling.

         The vote pertaining to the omnibus share plan was as follows:

For                          4,014,225
Against                        288,238
Abstained                      158,197

         The vote pertaining to the increase in authorized  capital stock was as
follows:

For                          4,136,102
Against                        239,654
Abstained                       76,518

         The vote pertaining to the elimination in stockholder preemptive rights
was as follows:

For                          3,417,454
Against                        300,432

                                     - 13 -

<PAGE>


Abstained                      144,057

         The vote pertaining to the limitation of director liability and removal
of residency requirements was as follows:

For                          4,021,378
Against                        304,742
Abstained                      126,154

ITEM 6 -  EXHIBITS AND REPORTS ON FORM 8-K

     (a) Exhibits
         3.1 Mason-Dixon Bancshares, Inc. Articles of Amendment
        10.1 Mason-Dixon Bancshares, Inc. 1997 Omnibus Share Plan

     (b) Reports on Form 8-K

         On February 26,  1998,  Mason-Dixon  filed on Form 8-K an  announcement
that it had completed the acquisition of Rose Shanis  Companies.  This event was
reported under Item 2 on Form 8-K.

         On April 14, 1998, Mason-Dixon filed amendments to its previously filed
report of February  26, 1998,  which  included  historic and proforma  financial
statements. This event was reported under Item 2 on Form 8-K.

         On May 8, 1998,  Mason-Dixon  filed on Form 8-K announcing its issuance
and sale of its 7.48% senior notes in the principal amount of $20,000,000.  This
event was reported under Item 5 on Form 8-K.

                              SIGNATURES

Pursuant  to the  requirements  of the  Securities  Exchange  Act of  1934,  the
registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
undersigned thereunto duly authorized.


                           MASON-DIXON BANCSHARES, INC.


May 14, 1998               /s/ Thomas K. Ferguson
                           ----------------------
                           By: Thomas K. Ferguson
                           President/Chief Executive Officer


May 14, 1998               /s/ Mark A. Keidel
                           ------------------
                           By: Mark A. Keidel
                           Vice President/Chief Financial Officer


C73576.636

                                     - 14 -